Iceland has the highest interest rates in Europe after the central bank raised rates by 50 basis points to a record 15.5 per cent yesterday as it strove to restore confidence in its struggling currency and quench fears of a banking crisis.

The move puts the tiny North Atlantic nation above Turkey’s rate of 15.25 per cent and comes just two weeks after it imposed an emergency 1.25 percentage point rise to 15 per cent, underscoring the depth of its problems.